Climate policy myths A Grist Special Series

Myth: Unlike cap-and-trade, a carbon tax is simple, immune to manipulation, & politically palatable 44

Posted 12:19 PM on 2 Apr 2009
by David Roberts
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A strange-bedfellows political coalition, everyone from the CEO of Exxon to climate scientist James Hansen, supports a carbon tax as an alternative to cap-and-trade. Tax proponents allege that cap-and-trade is too complicated; too friendly to financial industry tricks and manipulations; too open to loopholes, cheating, and special pleading; too weak to work.

This is all true. Or rather, could be true, if special interests are given too influential a voice in the process; if there is no organized grassroots movement applying pressure; if the legislators developing the policy allow it to happen.

The thing is, the same flaws could just as easily weaken a carbon tax. Just because it looks elegant sketched on an economist’s whiteboard doesn’t mean a tax can’t be corrupted in the real-world political process. (Have a quick look at the U.S. tax code.)

To boot, taxes of any kind are notoriously unpopular among the U.S. electorate.

It’s an article of faith among supporters that returning the revenue to taxpayers via rebates could bring public support around behind a tax, despite the fact that just such a refunded tax was roundly rejected in Canada last year. Despite the fact that a comprehensive new survey out of Yale (PDF) asked a representative sample of over 2,000 people what means they favored to fight climate change and a fully refunded gasoline tax came in dead last. Despite the lack of any real empirical evidence that taxes can be rendered popular with promises of rebates.

Pricing carbon will be a fraught political battle, in danger of being corrupted or dying in Congress. That’s true whether it’s cap-and-trade or a carbon tax on the table.

Comments

David Roberts is staff writer for Grist. You can follow his Twitter feed at twitter.com/drgrist.

Ken Johnson Posted 2:31 pm
02 Apr 2009
David argues that a carbon tax is not inherently simpler or less susceptible to political gaming, etc. than is cap-and-trade, but unless a tax is inherently more complex or manipulable, this is not an argument in favor of cap-and-trade.Regarding "the lack of any real empirical evidence that taxes can be rendered popular ..." David (and everyone else in this business) fails to ask the simplest question:Why?Taxes and cap-and-trade both put a price on carbon. With cap-and-trade, you have no idea in advance what the price will be. It might spike to $1000/ton or collapse to $1/ton. (Banking? Allowances must be over-allocated to provide a significant pool of bankable allowances, which will eventually get used whether or not they are needed. Safety valves? Price floors? That's starting to look a lot like a tax.) With a tax, you just set the price at whatever level you are able and willing to pay, no guesswork.So why is it then, that carbon taxes are less politically palatable than cap-and-trade? The question is not rhetorical.
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BILL HANNAHAN Posted 5:24 pm
02 Apr 2009
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</style> . You like calling it a tax because people oppose taxes. It is
really a toxic waste dumping fee. Nobody thinks companies should be able to
dump toxic waste free of charge. Call it a dumping fee and include all toxic wastes dumped
into the atmosphere, CO2, mercury, cadmium, particulates, sulfur, NOx etc. Set
the price equal to the best estimate of the cost of damage done. Rebate the
money. Most people would accept this if it was properly explained,
Hansen has it right.
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Sean Casten Posted 8:48 am
03 Apr 2009
Bill H: Be careful with your toxics analogy. CO2 is dangerous, but is totally different from every other pollutant in the sense that it's release is unavoidable. We all breathe, we all fart, and we all rely on an economy that is inextricably linked to carbon. (e.g., even if we could generate 100% of our electricity with renewables, we still need steel, silicon, cement and any number of other industrial products which cannot be produced without CO2 release). That's not to say that there isn't a lot we can do to drive that down, and perhaps even develop other technologies. But it is irreponsible to assume that an immediate phase-out as we have done for toxics is possible. Scale down, yes. Phase out, no.David: I agree with your general thesis, but would point out that the things we are doing under the Cap & Trade banner are, in practice, much closer to taxes. It makes this whole conversation rather difficult, I realize: while I agree with you that a tax is no simpler than C&T, what's been put out under the name of C&T is actually much more like a tax - and therefore subject to the same degree of political gaming. (Witness the lobbyists who line up to recieve distributions from C&T government largesse everytime we float another C&T bill.)
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Aldyen Posted 11:28 am
03 Apr 2009
Carbon or CO2 taxes can be less costly REVENUE generation programs to administer than cap and trade regimes. But they are extremely inefficient EMISSION CONTROL mechanisms. So is "cap and trade". In real life--beyond the theory--you cannot find any discharge fee or emission tax system in history, worldwide, that ever achieved a given discharge/waste/emission reduction objective in the absence of the very regulation that the pro-tax lobby always says is less efficient than the tax measure. Every nation always follows up pollution taxes with pollution control mandates. So our real choices are: (1) tax, and then go to regulation, or (2) go straight to regulation. The more important question, therefore, is: what is the most efficient form of regulation? (I include "cap and trade" in my definition of "regulation" because every cap and trade regime is built on a regulatory foundation and does not exist or function in the absence of regulation.) "Cap and trade" is really just a fancy name for quota-based supply management--the same market control mechansim that many countries use to control dairy and other food markets (usually under US protest) and cities use to control taxi service quality, supply and price. Whenever we have been serious about removing a pollutant or pollution precursor from our consumer products supply chains, we have done so by implementing product/performance standards, where the parties obligated to prove compliance with the primary reduction-driving mandatory product standards are the entities that DISTRIBUTE (as opposed to PRODUCE) products that contain the pollution precusors we wish to eliminate. When we wanted to get the lead out of gasoline, we ordered gasoline distributors to reduce the amount of lead they released to the market in gasoline on a straightline basis from 1980 actual levels to 0 by 1988. Canada and the US promulgated identical lead reduction schedules in the late 1970s. The Canadian regulation simply stipulated that any combination of obligated parties could comply jointly and any party that did not use their entire lead content entitlement in one year could bank it for future use as long as they used it before 1988. Canada's government did not set compliance price caps, tax leaded fuel, allocate quota (allowances)or set up a government-administered transaction registry or provide secondary lead market settlement and clearing services, at taxpayer expense, to the market. Strangely enough, the private sector found themselves perfectly capable of building a robust, effecient secondary market for lead attributes throughout the phase-out period without those taxpayer-funded administrative services. (Both the Canadian and US regulations defined basis lead entitlements in intensity terms, but incorporated provisions to adjust down lead entitlements in the event that total gasoline sales exceeded initial forecasts. Through this transparent lead entitlement review and adjustment mechanism, both the Canada and US regulations established absolute annual lead discharge caps before any form of tradable quota was introduced. As long as the private sector knew exactly how entitlements would be adjusted to reflect changes in gasoline demand, and which gasoline demand numbers government was going to use in the calculation, the market had no problem coping with the entitlement adjustment process. If anything, this process lead to a more robust secondary market for lead in Canada.) But US EPA went further into the market than the successful Canadian regulation did. But US EPA went further into the market than the successful Canadian regulation did. While the US lead regulation was identical to Canada's in the manner in which it established each distributors' lead content allocations and the reduction schedule, the US law stipulated that all gasoline distributors must surrender lead allowances equal to their lead content each year. Over and above the lead entitlement review and adjustment process, the US EPA created a supply of lead allowances equal to the sum of the entitlements the foundation regulation created. Then the US EPA freely allocated close to 100% of the US lead allowance supply directly to owners of US REFINERIES. So the day after the US implemented the lead cap and trade rule (the first "cap and trade" rule in US history), every US distributor that legally imported leaded fuel had to buy a unit of US lead quota from a US refiner to maintain their imports. In other words, the US lead allowance allocation and trading regime, laid on top of a gasoline product standard that was already aa complete and efficient market rule without the quota allocation, was trade protectionism, pure and simple. The US replayed this trade protectionist move in the name of "the environment" in the context of the CFC phaseout and is doing so, right now, in the HCFC22 phase out. This is why the Canadian government and other energy, food and buidling product exporting nations--operating prudently and in the best interest of the environment--should and will react cautiously towards any US or European global cap and trade proposal. And, of course, the reason it is going to be so difficult for Congress to agree on a US GHG quota allocation is because of the very protectionist nature of the quota-based supply management mechanism. Should they give more protection to US coal producers than US oil, aluminum, iron or steel producers? Or should the primary reason for the unecessary overlay of a quota regime on top of otherwise complete market rules be to generate new tax revenues through quota sales? Of course, if Congress and the Canadian parliament simply elected to implement common absolute 35-year carbon content or supply chain GHG (which one depends on the target product) reduction schedules for the 12 basic carbon-based commodities that account for over 90% of GHGs, in the form of regulated product standards similar to Canada's historical leaded gasoline product standard, investors in and foreign suppliers to the North American market would have maximum incentive to innovate to deliver newly compliant products to the at least cost. By definition, the laying of a quota-based supply management regime on top of the most efficient product standards only acts to introduce inefficiency into the market. In the absence of "cap and trade" the winners are those who make the best bets on innovation and deliver real greener products and servies to the consumers. With "cap and trade" Congress gets to decide who wins and who loses. And when Congress sets aside quota to target new product solutions that Congress chooses, the potential exists for significant pubic and environmental resources to be chewed up by bad technology choices that are not subject to real market tests. In the leaded gasoline example, Canadian refineries stopped making leaded gasoline in the mid-1980s, ahead of schedule. We got the lead out of gasoline sales for a premium of under CAD$0.01/litre over the leaded gasoline baseline. The last US refinery to manufacture leaded gasoline for export did not remove lead from its product line until something like 1996. The premium that US consumers paid for unleaded over leaded gasoline peaked at $0.021/litre. More importantly, we in North America got the lead out of domestic product sales over a period when baseline gasoline prices were in STEEP DECLINE. While unleaded cost more than leaded fuel would have in 1988, the 1988 retail price of unleaded was still nominally less than the the 1980 retail price of leaded. If we had tried to shift the North American consumers to choose unleaded instead of leaded fuel through a point-of-consumption tax on leaded fuel during this period of delining basic petroleum pricees, we would not have achieved our lead elimination targets on schedule. In fact, in the last 1970s European governments theoretically bound to the lead phase out schedule that Canada and the US did. But EU member states elected to impose a "lead differential tax" to create a price advantage for unleaded fuel and committed to use the revenues fro the new tax to subsidize refinery and auto manufacturers' development of the new techs they needed to introduce to make unleaded fuel and to make it work in existing and new cars. Most EU member states actually kept the commitment to spend the lead differential tax revenues in this manner. By 1995, almost all of the "petrol" for sale at retail EU gas pumps still contained significant amounts of lead,leaded fuel sales were skyrocketing and unleaded fuel sales were flat, even though the retial price for unleaded was from US$0.20 to US$0.60/litre lower than the price for leaded. In 1995, EU members agree to really pump up the lead differential tax to finally shift consumer choice. By 2000, leaded fuel cost US$1.11/litre more than unleaded in the UK, but there had been an insignificant market shift from leaded to unleaded. And from 1990 to 2000 the base price of gasoline was on the increase, quite the opposite of the 1980 to 1988 period. In 2000, most EU member states finally bailed and implemented a Canada-style product standard that forced the lead out of most EU gas pumps between 2003 and 2005. Three EU member states did not adopt the product standard because they cannot currently afford to give up their lead differential tax revenues. All of the petrol that is sold in those 3 nations still contains lead this day. I have already taken up far too much space, so I won't go on. But the explanation for the failure of extraordinarlily high EU fuel tax to shift consumer demand from leaded to unleaded when we in North America got the job done for under a $0.02 premium on a declining base price is very interesting. You might also note that the same story appears to play out in most consumption taxed-markets, as well as the EU carbon and CO2 tax markets. But that is a story for another day. Suffice to say that the pro-carbon tax crowed remains embedded in theory and has not yet looked up to ask or answer the enormously interesting question: why has real life never complied with our theory, anywhere in the world, when it comes to energy taxes?
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BILL HANNAHAN Posted 2:14 pm
03 Apr 2009
Sean, i am puzzled by this comment because i am generally in agreement with what you said.But it is irresponsible to assume that an immediate phase-out as we have
done for toxics is possible. Scale down, yes. Phase out, no.I have not called for phase-out, quite the contrary.Bio gases are not first generation fossil but we use fosil fuel to produce food, and the damage done by those emisions should be included in the food price.
Carbon or CO2 taxes... are extremely
inefficient EMISSION CONTROL mechanisms.... So our real choices are: (1) tax, and then
go to regulation, or (2) go straight to regulation. The more important
question, therefore, is: what is the most efficient form of regulation?Aldyen. You are assuming that the best goal is a specified level of emission to be determined by politicians.Actually the goal should be to maximize quality of life. There is a relationship between the emission rate and quality of life. It is not linear, it is a curve with an inflection point.Allowing waste to be dumped into the atmosphere free of charge has resulted in a condition well away from the inflection point. requiring zero or very low emissions will put us on the other end of that curve, perhaps increasing human suffering well beyond current levels.I do not trust politicians to know what the optimum level is. Charging the full cost of damage done will automatically drive the technology to the optimum mix whatever that is.Most of the immediate damage is from particulates, mercury, sulfur and NOx, things not even being considered in current regulations. We need atmmospheric dumping fees for all of these in order to maximize quality of life.
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Sean Casten Posted 2:22 pm
03 Apr 2009
Bill,Completely agree that we need to price the externality and send a signal for markets to respond to. My reaction was to the dangerous meme in much of the environmental community that suggests that CO2 is a toxic waste produced by others, and that others must bear the brunt of their sins. We are all collectively to blame for CO2. Every time we drive, breath, travel, use metal or plastic products or write blogs, we are contributing to the problem. That means we need to contemplate a regulatory framework that is quite different from the ones we have used for toxics. No one is better off because the local factory dumped their PCBs in their pond other than the factory's owners. In that case, the point of compliance is clear. But all of us have realized varying degrees of economic value from just about every activity that has led to CO2 emissions. Might we have realized that value (or even a greater value) if upstream sources were less CO2 intensive? Sure - but we still realized massive value.At core, I don't think we disagree - I'm just hypersensitive to any framing within a toxics regulatory paradigm, because it leads to a slippery slope, at the bottom of which are deeply sub-optimal regulatory frameworks. That, at core, is the problem with the whole cap & rebate model - it presumes that the bad guys are the emitters and the good guys are all us taxpayers who suffered from those power plants emissions. Bullsh*t. As Jack Nicholson said, we wanted that power. We needed that power. We may not be able to handle the truth of our complicity, but we are quite complicit. Put a price on CO2 release - but use the proceeds to shift $ to those who are taking steps to reduce, not to those who were deemed worthy of government largesse. That's how you handle toxics - it's not the right way to handle CO2.
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BILL HANNAHAN Posted 2:45 pm
03 Apr 2009
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</style> Sean, I agree that our views are close.It is not clear that you distinguish virgin fossil carbon
from recycled atmospheric carbon. The issue is the increasing concentration of CO2
resulting from the continual injection of new fossil carbon. Only that stream
requires an atmospheric dumping fee. I do not understand why you think the fossil carbon stream
needs a different treatment than other harmful atmospheric emissions. A dumping
fee equal to the best scientific estimates of the damage caused by each of
these things works best. Those cost estimates can be refined as the science
becomes more accurate.
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Sean Casten Posted 3:07 pm
03 Apr 2009
Bill:Ultimately, it is all about atmospheric ppm - so yes, I quite agree with you that the need is to reduce the emissions rate of fossil carbon. My point is that for every other pollutant that we have ever seen fit to regulate, we have been able to remove them from the emissions stream with little to no economic cost. We take lead out of gasoline and get rid of lead pollution. We install baghouses to collect particulate that have a small negative impact on operating costs, but greatly improve downwind quality of life.The problem with fossil CO2 is that it is fundamentally different from all these sources. It's release is entrained in a whole host of goods and services that we cannot simply mandate the elimination of. We can certainly expedite a shift to renewables, and we can certainly craft rules to incentivize more efficient use of all energy sources. But you can't make cement without releasing CO2. You can't make steel. You can't make silicon. And - unless you're a plant - you can't live.That doesn't mean that we have to be fatalistic about it. Indeed, there are such massive opportunities to reduce the fossil carbon-intensivity of our economy that I am fundamentally optimistic about our chances... but only if we craft the right regulations. Getting all the capital deployed to lower our fossil C-intensivity will require massive regulatory reform, and it won't come about simply by penalizing emissions sources or mandating that it can no longer be released as we have for other toxics programs. We must have a regulatory model with as many balancing carrots to offset those sticks if we are to ensure that we get all the worlds innovators, entrepreneurs, etc. to deploy their prodigous talents to overhauling the economy. We'll need every one of them - but we wont' get them simply by saying "thou shalt not" and hoping.That's not at all inconsistent with saying that we ought to charge a fee for CO2 release. But it's not appropriate to say that the size of that fee ought to be set by the cost of the damage. The price of the fee ought to be the minimum cost required to clean up - which you get if you incentivize good behavior. Think of it the other way: suppose that I can reduce CO2 emission for a profit (I can). Is it appropriate for society to pay me $200/ton for that service just because that's the cost of CO2 release? Selfishly, I might like that. But societally, we all win if I have to bid against other carbon sinks such that we all end up delivering the maximum CO2 reduction for the minimum price. Which may just be negative.I'm not suggesting a precise mechanism per se - simply pointing out that if all we do is set a fee and leave government to disburse as you suggest, we are stuck with paying the maximum amount for CO2 release. All stick, no carrot. Which not only fails to incentivize capital deployment, but also fails to reduce CO2 as fast as we could. After all - all wallets are finite. Reducing CO2 for a lower price/tonne means that we reduce more CO2 for a fixed total amount of $. So long as the ultimate goal is CO2 reduction, that must be kept in mind.
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Aldyen Posted 3:46 pm
03 Apr 2009
Bill, I respectfully disagree a little. I do not believe that it is the job of politicians to represent society in the determination of what price to put on environmental devastation. I believe the job of politicians to struggle with the question of how much mitigation is necessary in the short, medium and long term, given the best information available on costs and the tradeoff between environmental degradation and other social values, and to then leave it to the market to compete to comply with effective mitigation orders at least cost. If I understand you correctly, you believe that it is the job of government to set prices. You and I do disagree there.More importantly I--perhaps incorrectly--read in your response the assumption that when governments elect to put a price on environmental damage, a reduction in that damage that inversely correlates to the price will result. My key point is that this assumption has not proved put in any real life discharge fee or pollution tax application of which I am aware. The UK attached a $1.11/litre social cost to leaded gasoline with very little corresponding environmental benefit. Canada and the US got the lead out for under $0.02/litre. Denmark has had CO2 taxes in place since 1991, Canada has none. Danish per capita consumption of CO2-taxed energy products has grown faster than Canadian per capita consumption of the same commodities every year since 1991. Danish net electriicty exports and renewable electricity technology exports did combine to generate US$6 billion in trade revenues in 2008, roughly 2 times the value of those exports for Denmark in 1991. But Danish fossil fuel imports and exports have both exploded since 1991, with the Danish GDP more dependent on fossil fuel trade than any time before in that nation's history. The market value of net Danish fossil fuel exports in 2008 was over $37 billion--more than 6 times the value of 2008 electricity and clean electriicty tech exports and 7 to 8 times the value of net Dansih fossil fuel exports in 1991.There are many other examples. To posit that an activity tax generates a proportionate reduction in that activity remains pure fantasy when we look at real world experience in energy and a number of other commodity markets. Again, it is worth asking why this is true. Why doesn't the theory play out in real life? After all, the theory is quite logical. But the reality remains is that the theory that energy taxation inevitably results in a aggregate demand cuts does not play out in real life, any better than Mr. Greenspan's theories of how ths US monetary system works did. It is well past time we stoped insisting that real life reflects the theory and asked: what is wrong with the theory?I am not a blind free enterprizer. I am big on all sorts of market and product regulations. All market enterprizes know how to do is innovate and compete on price in a continuous fight to secure and then protect dominant market shares. Perfect competition is unstable, and any organism alive fights to achieve stabliity--corporate enterprizes no less than other organisms made up of humans. Strangely enough, society benefits when market enterprises are in the process of fighting for stability, but not so much if/when the enterprizes actually achieve it. I do believe the job of politicians is to dictate and continually revise, as transparently as possible, minimum performance standards for key commodity markets and then to stand back and let the enterpizes compete on price and innovation. Is the current ultra low sulphur diesel standard too stringent or should it be tougher? I don't know. Would we have been better off to tax sulphur and let the market decide how much sulphur is the right amount to remove, if any? I don't think so. Would a tax measure have brought us the safe electrical components we got through regulated performance standards. Again, I don't think so. I don't know if we should have phased lead out of gasoline in 4 years instead of 8, given the socio-economic implications, or should have allowed the phase out to take twice as long. I do know that I am glad that we did not let our governments tax lead and leave it to the market to decide if/when to cut back their lead content.
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David Roberts Posted 3:49 pm
03 Apr 2009
Hey, Bill and Sean! You're replying to each other! Why not try using the little "reply" link at the bottom of your respective comments?We've got new functionality on the site. You people are by God going to use it!
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Sean Casten Posted 3:50 pm
03 Apr 2009
Fine. But I'll be damned if you're going to make me twitter.
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Aldyen Posted 3:53 pm
03 Apr 2009
Bill,I just reread your post, something I should have done before I responded to it. You said: "Actually the goal should be to maximize quality of life. There is a relationship between the emission rate and quality of life. It is not linear, it is a curve with an inflection point." I completely agree. The role of government is to try to maximize the quality of life for all its citizens and there is a relationship between the emission rate and quality of life. So the role of government should be to regulate the emission rate.
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Maxi Posted 8:21 pm
03 Apr 2009
I disagree with 'market mechanisms' i.e., cap and trade/carbon tax, as the primary means of reducing carbon emissions. Tends to reflect the Zeitgeist of modern society "economics is the new religion".

Tend to agree with David in that both mechanisms are likely to get coerced by vested interests as governments pander to the big end of town. There are far simpler ways to solve the problem of co2 emissions than market cap and trade and carbon tax mechanisms.

A nation plan to reduce carbon emissions through renewable energy,energy efficiency, and aforestation would be a good start.
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splashy Posted 2:21 am
04 Apr 2009
Yes, that would help in either following the conversation or moving on to other comments. Thanks for pointing that out.
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Pangolin Posted 2:36 am
04 Apr 2009
Ooh, LOOK! A "hide replies" button. That's going to come in useful. Thanks D.R.
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Pangolin Posted 3:07 am
04 Apr 2009
I'm with Maxi on this argument. The point is to get energy saving devices installed ASAP and occupancy permits and the ability to withdraw them does this just as well as any other option. We can bypass all of this with "meet the standard or get shut out" legislation.

This approach doesn't work in all application but then no single approach does. As Joe Romm frequently points out we will have to do everything possible to stay out the really scary consequences of climate change. Since we're probably going to diddle around and do pretty much nothing except destroying the automobile industry for the next few years we're going to have to do that everything in an awful hurry if/when we decide to do it.

Our little "free-market" fantasies aren't going to cut it if that happens. We gotta fix this roof before the hurricane happens because during is going to be a tad dangerous.
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Sean Casten Posted 8:46 am
04 Apr 2009
Maxi - You write as if we have a choice. A market simply is the thing that summarizes how masses of people act. You can have capitalist markets, socialist markets or any other kind you like. But the key point is that materially changing the rate of CO2 release will require massive deployments of capital that far exceed the resources of the government. There is no enlightened despot who, with a wave of her treasury wand can make everything all better. So the choice in front of us is how to encourage all that behavior for which there is no direct government control. Mandates? Prices? Penalties? All induce market mechanisms, they just take a different flavor.This isn't some zeitgeist issue of economics and religion, but rather a question of what tools government ought to use to maximally encourage the behaviors they seek. In all cases though, that behavior will happen through a market. It may not be a free market (and indeed, never has in the energy sector), but a market nonetheless.What we need to do is to use as many tools as possible. Penalties, incentives, etc. What we should NOT do is pass rules that assume that we have some enlightened despot with all the answers to start directing capital towards preferred technologies, companies and approaches. No despot is that enlightened.
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Pangolin Posted 10:21 am
04 Apr 2009
Sean- It's not that we have to find some new source of capital to make many of the needed changes. A solar energy system that breaks even on costs in 10 years at current costs is likely to be showing income before then. Likewise some of the energy saving programs that require large capital outlays will get past break even in five to seven years. For some reason we can't find or create the financial vehicles to get these installs done outside of Berkeley CA and Gainseville FL.

We have a choice. Purchasing the backlog of Detroit-made SUV's will never produce a single joule in net energy gain. Using those same dollars on rooftop solar systems will. Assuming the money supply isn't infinite (cough) we may not get to have both toys. Anyways, GM is already bankrupt. Likewise that Trillion dollars we gave the banks seemed to go up in a puff of smoke. Those same funds could have installed your energy saving devices on every reasonable application with close to guaranteed returns in net energy and capital.

Massive chunks of money appeared as if from thin air when Wall Street squealed. Fixing the energy balance of the US and then the world might not keep the suits happy but it could do something for our long term ability to grow food. I think we can find the money somewhere; perhaps that same magical sack that fed AIG, BofA and Wells Fargo.

The energy and mineral resources to make the changes are there. Directing those resources is a matter of political will or won't; not a matter of foo-foo economic "laws."
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hapa Posted 3:19 pm
04 Apr 2009
Sean, here you say "And - unless you're a plant - you can't live [without CO2]" and earlier you talk about breathing. Catch up with the science, please. Current and future emissions bring us high likelihood of irreparable ecological harm, intense social disruption, and catastrophic economic drag.You want to use current raw materials manufacture as a reason to treat new pollution by "intensity" when the science says to get out of Dodge ASAP with new/reduced virgin materials use. You have your priorities straight, but they're wrong.
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auntiegrav Posted 7:10 am
05 Apr 2009
The Republicans have the perfect tool: it's called the FairTax bill.
If the Democrats are serious about environmental issues and preventing the economic collapse from financial bubbles, then they should just get on board with the FairTax (sales tax to replace income taxes) and the only issue left is to negotiate the rate to a point where people will stop consuming more than they need.
Things like carbon taxes and cigarette taxes and gas taxes are all just little con games when the real issue is our overall consumption and waste of resources. If someone comes up with an alternative fuel for cars or electricity, then the carbon tax becomes useless and we all go back to consuming the planet in other ways. The FairTax puts the costs of ALL the externalities at the focal point: where purchases are made.
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hapa Posted 2:01 pm
05 Apr 2009
you can say the republicans have something "perfect" and then question the democrats' seriousness but the first demolishes the authority needed for the second. likewise you can say you want to change taxes so they DON'T reflect people's ability to pay but you can't call that fair. it's a hard world to navigate, i know, but you'll get there.
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Aldyen Posted 3:57 pm
05 Apr 2009
Auntiegrav, Many of the world's leading economists would agree that the right thing to do is increase sales taxes and cut income taxes. I am an economist, but far from world-leading. I don't agree that it is a good idea to use energy tax revenues to cut income taxes (which likely tells you why I am not "world-leading", but bear with me anyway). It is possible to design income taxes that are neutral or non-neutral (either "progressive", reducing the disposable income of the rich more than the poor; or "regressive", reducing the disposable income of the poor more than the rich). Sales taxes can run the full spectrum from progressive through regressive, depending on the consumption or commodity that is being taxed. But energy taxes are always regressive. Where I live, energy eats up 13% of the disposable income (when we include all forms of government support in the calculation of "disposable" income) of the poorest 20% of families. 40% of those families don't own even one car and 70% of them rent accommodations where they have no direct control over the central heating system of the major appliances in their appartments. The wealthist 20% of families enjoy 13 times more disposable income than the poorest and energy eats up less than 2.5% of that income even though they own and operate over 2 cars per family, recreational vehicles, summer homes, etc. Hitting all energy sales with the same tax puts poor families in the cold at tax rates that are imperceptible to the wealthiest. Britain's Thatcher government initially financed corporate and personal income tax cuts in 1993 by introducing the "fuel tax escalator", an annual 3.5% increase in the excise tax on petroleum product sales. This tax shift was promoted as a conservation measure. When Labour took over government in 1997, they increased the annual fuel tax escalator to 5%. By 2000, over 5 million UK households could no longer afford to heat their homes adequately in the winter. In 1999, reacting to what was deemed a national emergency, then-Chancellor (now Prime Minister) Brown froze the fuel tax rate for one year. In 2000, he eliminated the fuel tax escalator and cut the value added tax (VAT, a general sales tax) on fuel from to 5%, cutting the total tax collected on fuels to pre-1993 levels. Then in 2001, the UK Parliament created the "Fuel Poverty" Program, to try to address the impact of the UK's high energy price policy on the most vulnerable UK families. The Fuel Poverty Program was largely justified by studies that showed that these families that could not stay warm in the winter were costing the national health care system too much. In the 2001 budget the UK Parliament committed to reduce its dependence on fuel tax revenues over time and fuel taxes have fallen every year since then, both absolutely and as a % of total tax revenues. Within three years of the initiation of the Fuel Povery Program, new annual home heating fuel rebates and increases in income support payments for the poor that were directly identified as necessary to address energy cost increases had cost the UK taxpayers more than had been collected through the fuel tax escalator over the entire 1993 through 2003 period. To fill the government budget whole that all of these adustments created, the UK Parliament increased both personal income taxes (by lowering thresholds at which higher rates applied) and payroll taxes. Rather cynically, Brown announced that the revenues from Britan's "Climate Change Levy" were being use to "reduce" payroll taxes, even as he increased the payroll tax rate by 1% each year after 2001. When challenged, he simply said that the "reduction" in payroll taxes was relative to what the hike would otherwise have had to be in the absence of the climate change levy revenues. (Note that the UK's climate change levy is not carbon-weighted.) And even after three years of massive Fuel Poverty spending and poor family income support paymnet increases, the UK still had over 2 million families in the ranks of the "fuel impoverished" at the end of 2003. The UK Fuel Poverty Programme still operates, but the number of households in fuel poverty have unfortunately grown from 2 million to 3.5 million between 2003 and the end of 2008. What the UK history shows us is that it is very expensive/inefficient to collect taxes from the poor through energy consumption taxes and then administer programmes the primary goal of which is to directly pay those taxes back to the poor. It is far more efficient to promulgate fuel efficiency standards for appliances, vehicles and commercial/industrial heating and cooling equipment, carbon content standards for fuels and then use a neutral to progressive income tax system to mitigate the price impact of these product and performance standards on poor families. If you want to read about the UK fuel povery program, go to: http://www.berr.gov.uk/energy/fuel-poverty/ If you want to read how the UK Budget Office thinks they are doing addressing the challenges of making the UK tax system more fair, read "The Effects of Taxes and Benefits on Household Income [for any given year]" at http://www.statistics.gov.uk/statbase/product.asp?vlnk=10336. In the report for 2006/7, for example, note that on average, families in all but the top 2 of the 5 income quintiles received more $$s worth of government benefits (cash and in-kind, like free health care and other services) than they remit in all forms of tax (income, payroll and sales). This is a CRAZY place for a government to find itself...paying largely moderate-to-high civil servants to collect and then oversee the process of returning so much cash to 2/3 of UK families. Look specifically at Table 3 at http://www.statistics.gov.uk/downloads/theme_social/Taxes-Benefits-2006-2007/tax_benefits_0607_all_tables.xls. After 5 years of working to try to fix the problem, at the end of 2006/7 it was still the case that "indirect" (sales) taxes ate up 31.1% of the disposable incomes of the poorest UK families and only 13.3% of the incomes of the wealthiest (where the average over all families was 18.1%). Duties on hydrocarbon oils and vehicles ate up 3.4% of the disposable income of the poor, compared to the all family average of 2.2%. VAT (the sales tax that applies to almost all personal consumption but which is a pass-through cost* for industry) ate up 12.4% of the poorest families incomes, compared to the 7.7% average for all families and 6.0% for the wealthiest. To put this in context, UK income taxes ate up 3.5% of poor family incomes and 18.5% of the wealthiest family incomes. So the highly regressive distribution of the sales taxes almost completely wipes out the very progressive shape of the income tax system. At this point, it would be most efficient for the UK to simply eliminate income taxes altogether for 3/5 of all households, eliminate sales taxes and go for a (lower than current) flat tax for the 2/5 of richest households. (Some would argue and I would agree that the exisitng highly progressive tax system simply drives rich families' savings offshore.) We can find lots of countries that worked hard to shift tax burden from income to consumption since 1991. And we can find lots of academics (and many bureaucrats) who say the outcome has been great. But the facts and official budget documents tell a very different story. Every nation that went for a massive income-to-consumption tax shift between 1990 and 2000 has struggled very hard to address the intolerable perverse effects of the tax shift since 2002. In every case, the pre-tax shift promise in 1990/1 was that sales tax revenues would finance income and payroll tax cuts. But in every case (UK, Norway, Denmark, Sweden, Germany, etc.), by 2008, both personal and payroll tax rates jumped up higher than anytime in history. Governments are still promising to cut payroll taxes, having failed to do so, so far. Let's hope that in North America we take a breath and try to learn from instead of simply repeat those failed European experiments. Let's also think twice about buying the rhetoric that new investment in clean energy technologies will automatically flow from energy tax increases. We have all read about Germany's 269,000 new "clean energy technology" jobs. But the sectors that include the new clean tech jobs actually netted 970,000 in total job losses between 1999 and the end of 2007 (before the global recession), and I think it can be demonstrated that Germany's high and regressive energy price policies are a responsible for net job losses (high energy price policies accelerated the rate of manufacturing job losses). I am an environmentalist and I believe we have to fundamentally restructure our energy systems. But we should be careful to do so differently than our friends across the Atlantic...or prepare for the less than stellar (though overly and inaccurately hyped) results that have been realized across the Atlantic. What do these look like? Well, the average Dutch, German and Danish household now pays ove US $0.41/kWh for electricity. Per capita energy consumption and low income household income support payments have increased in those countries faster than they have in Canada and the US. Panicked in the face of public protests against out-of-control energy prices and unable to hike income support rates, in 2008 the German government approved utilities' proposals to build 21 traditional coal-fired power plants (no CCS), which--by government's own estimates--will add 68 MTCO2e/year to German's GHG inventory. 8 of those plants are currently under construction. 4 of those plant wipe out all of the "avoided GHG" benefits of 100% of the new renewable power that Germany brought on stream since 1999. We have to ask: why can't Germany (or any nation) have an 100% renewable energy supply chain at a US$0.41/kWh retail price point? The answer is that there are right ways and wrong ways to build the renewable future we want--and overly simply high energy price policies are wrong ways.
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hapa Posted 5:19 pm
05 Apr 2009
aldyen yes germany has high electric prices but you can't talk about price-per-kwh across energy efficiency policy and cost-of-living boundaries. you have to talk about periodic costs or application costs, like how expensive it is to run a typical refrigerator in each country, adjusted for PPP, and then you have to look at how a household's expenses are structured, to understand what other cost savings -- or other priorities -- are involved. a household that pays significantly less for healthcare, for instance, can afford to pay more for electricity, especially if all their household equipment is very energy smart.
i can't find a single article that says coal plants are being built in germany because of an energy price panic. show me. because what i find when i look is that people talk about the construction jobs, and how the program to get rid of nuclear was combining with the potential profits of burning coal in a high-rate electricity market to create a coal push.
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GreyFlcn Posted 7:37 pm
05 Apr 2009
Well, I will say this.
One thing that scares me about cap™ is the insistance on having offsets.

Since to me, it's rather distressing to know that if:
1. Offsets are easy to fake
2. Permits = Offsets
3. Permits are easy to fake
_One might even go so far as to question whether we're asking ourselves the right question in the first place?
A. Should the focus be primarily on creating downward pressure for high-carbon industries.
B. Or should it primarily be focused on creating upward lift for low-carbon industries.
And if the answer is "B",
Especially when faced with the prospect that we have politicians who aren't willing to cause "pain".
Then why are we worrying so much about A, and practically ignoring B.

For instance, "Federal Infrastructure Financing" might be what we really should be talking about.

_That said, I don't really have any preference for permits, or taxes. However I do know that I have a strong preference against offsets.
(However a completely seperate federal grant program using the collected revenues, now that I'd be perfectly fine with)
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GreyFlcn Posted 7:43 pm
05 Apr 2009
Many of the world's leading economists would agree that the right thing to do is increase sales taxes and cut income taxes.Don't you mean increase sales taxes, and cut "payroll" taxes.
Cutting income taxes would be absurd.http://upload.wikimedia.org/wikipedia/en/d/df/NRST-percentile.png
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Aldyen Posted 10:43 pm
05 Apr 2009
Hapa,

On comparing electricity costs across cost of living boundaries, the US dollar-equivalent purchasing power of one DM is between US$0.82 and US$0.83 (see OECD Stats at http://stats.oecd.org/) So before considering the competition between household expenditures, US$0.41 buys substantially less in goods and services in Germany than it does in the US. When it comes to competition among household expenditures, the average Germany household pays substantially more in income and payroll taxes than the average US household. For example, the average German two income family with two kids had US$57,256 in gross income in 2007 compared to US$54,858 for their US counterpart. But after income and payroll taxes that German family had US$40,112 in disposable income (including child support, training, day care, rebates and all other government help to families) compared to their US counterparts who had US$$46,053 to cover all household expenditures. When we account for the purchasing power differential, that German disposable income could buy the equivalent of only US$32,892 worth of goods and services. It is true that the German family does not have to pay for health care out of that disposable income (health care insurance costs are covered in their payroll and/or income taxes), but US$0.41/kWh for electricity still looks pretty intimidating to me. Renewables made up 12% of German power generation at the end of 2008, compared to 5% for the US. My key point is that I don't think Americans would be likely to agree that a 5% - 12% hike in the renewable share of total power supply is actually worth a power price increase to over US0.40/kWh. I am not arguing against renewable power mandates--in fact I am arguing for them. I am actually arguing that the way Germany administers its feed-in tariff and other tax revenue pools is a disaster in renewable power-for-dollar terms and we should all step back and ask: how did Germany prices get so high at so low a renewable market penetration rate, and how do we make sure that does not happen here? I believe we are justified in expecting alot more renewables than Germans are getting for the prices they pay.

On the reason for Germany's approval of the coal plants, you are right that it has a little to do with nuclear power in the long term, but not alot. 27% of Germany's power supply currently comes from nuclear reactors (compared to 19% for the US). But the new coal plants are not enitely about replacing nucs. Over the next 8 years some 40,000 MW of old largely lignite-fired power plants have to be decommissioned or modernized to extend their operating lives for 10 years or more. All of this coal-fired generation capacity will be decommissioned before the first German nuc is scheduled to go down. The question raised in Germany was: could the country afford to replace all of that old coal power supply with conservation and renewables? Rightly or wrongly, after setting a conservation target of 11%, the decision the German government made was: no, they can't. The old lignite plants are very high emitting and new coal plants will have lower emissions per kWh of output, even though they will be using technology that was commercially viable 15 years ago. But most of the new plants will have higher generation capacity than the plants they are replacing and the anticipated result is a net GHG increase.

If you cruise Der Spiegel you will note that high power prices became a major political issue in Germany in late 2007/early 2008. "Heating and electricity bills have...recently climbed to that point that they now account for 40 percent of total housing costs." (der spiegel o5/09/2008)

The German electricity market is not easy to understand. From 1995 through 2007, household electricity demand grew just under 10%--about in line with population growth. At first, that looks far from out of control. But over that period a large chunk of German households switched from coal and oil to imported natural gas for heat, hot water and to run certain appliances, like stoves and ovens. For a while, much as you suggest, it looked like high electricity prices might be tolerable, because electricity accounted for a relatively small share of total household energy demand. But then the price of natural gas skyrocketed and the price of coal doubled. In 2008 German natural gas distributors demanded approval of a huge rate increases after electric utilities got a 20% rate increase approved in 2007. In May 2008, discussing the proposed natural gas price increases, Der Speigel reported: "The average three-person household would then have to pay around €400 ($622) more for natural gas than it does today. From around their current €1,600 value, heating bills would jump to as high as €2,000. Even energy providers themselves believe that this would reach a magnitude that many households would find very difficult or impossible to bear. In recent years, public utilities have already reported a growing trend of outstanding debts, as more and more customers are unable to pay their bills...Likewise, for electricity prices, no relief is in sight for consumers or the industry, and the already record prices will continue to soar.”

One challenge in trying to understand German (and a number of other European nation) electricity prices is that the true cost of transmission is not transparent. I think (but cannot know for sure) that if we could see all the numbers we might conclude that the German policy to build transmission to chase renewable power resources is unwise. Recognizing that we need more transmission capacity to realize our clean power goals, the question is: can we execute a more rational transmission capacity expansion plan than they appear to have done?
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Aldyen Posted 11:25 pm
05 Apr 2009
GreyFlcn,

I agree that it is crazy to increase sales taxes to cut income taxes, but that is, in fact, what all of the carbon/CO2 taxing nations in Europe did between 1990 and 2000. That is also what my provincial government (in my view, unwisely) did here in Canada in 2008. In every case, the European governments initially used new emissions and other sales tax increases to cut both corporate and personal income tax rates and promised that cuts in payroll taxes were to follow as scheduled emission/energy tax rate hikes were implemented. But I can find only one case where a portion of the promised payroll tax cuts actually happened. If you plot European GHG emission trends next to employment in the goods-producing sectors (including construction), you will see that European GHG "reductions" track closely with job losses in the goods producing sectors--which job losses might have been at least slowed down a little if those governments had made some real attempt to cut payroll taxes. In 2007 in Germany, a two income earner family that grossed US$57,256 paid more than US$11,266 in payroll taxes and their employers forked out a matching amount. The US comparable number is US$4,306 each for employee and employer contributions. Health care premiums have also increased across Europe every year since 1995, but, of course, they are still much lower than US heath insurance costs. And some would argue that health care services have improved, at least in the UK, over that period. European families also pay Value Added Taxes (VAT)--general sales taxes on most goods and services--out of after-tax income. General VAT rates run between 18% and 25%, depending on the country (but many countries have discounted the VAT rate on fuel sales to non-commerical consumers over the last 7 or 8 years to try to provide some relief from high energy prices. In Sweden, all government departments and public sector service agencies--including hospitals, prisons and social service organizations--pay the the full 25% VAT just as if they were private sector organizations. So Sedish citizens have to pay higher income taxes to cover hospitals' obligations to pay 25% VAT on their purchases. I have to say that strikes me as a little weird--to pay income taxes to cover my publicly-funded health care institutions' sales tax liabilities.
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David Roberts Posted 12:33 am
06 Apr 2009
Aldyen, my friend, may I suggest that you use lots and lots more paragraph breaks? It's very difficult to read such a long chunk of unbroken text, particularly on a computer screen.
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Aldyen Posted 5:33 am
06 Apr 2009
David,

I have been typing in paragraph breaks, and my messages all show the paragraph breaks at my when I "preview".

But for some reason they have disappeared in a majority but not of all of my final posts. Can't figure out why...it bugs me too. I wonder if this happens when my message gets too long.
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auntiegrav Posted 6:46 am
06 Apr 2009
Has anyone here actually READ the information on the FairTax which I mentioned before replying? Please do before calling it "regressive" and talking about the "burden on the poor".
There is a simple thing called a "prebate" which is 'refunded' each month to everyone (not just the poor) for the costs of the tax on spending at the poverty level. In other words, it is a simple matter to relieve the poor of the burden of taxes, much simpler than how it is done now with the income tax code.
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auntiegrav Posted 6:52 am
06 Apr 2009
OH, and back to the idea of taxing carbon. What if I invent something that doesn't use carbon to produce energy? How much of the planet would be left when it reaches common use? The problem is not specific to fossil fuel use. The problem is that humans use more than they put back and we are consuming things that should not be consumed. If we want to change that behavior, we have to give people ALL of the information (true costs) of the things they think they want and reduce the incentives to companies to manipulate minds (especially young ones) through advertising. It is one thing for a manufacturer to get a break on sales taxes when buying raw materials that will be taxed at the retail level, quite another to give a 'business expense deduction' for coercing young minds to demand their parents take them to McDonald's every day for the latest series of landfill-destined Happy Meal toys.
The obfuscation and slimy consumerism needs to be moderated directly. The only question left is "how much?"
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GreyFlcn Posted 9:11 am
06 Apr 2009
Remind me what's "Fair" about providing an income-taxcut for the rich?
http://upload.wikimedia.org/wikipedia/en/d/df/NRST-percentile.png
http://greyfalcon.net/taxevasion3Doesn't really matter what right-winger it is (Be it George Bush, or Ron Paul), they always seem to get it in their head that they need to make this gap as wide as possible.
http://greyfalcon.net/concentrate.png
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Aldyen Posted 9:39 am
06 Apr 2009
Auntigrav...I actually did read the FairTax stuff. I live in a place in which families that qualify for income support ("welfare") as the well as the working poor have, for many years, qualified to collect rebates of all of the sales tax they pay on fuels and other commodities. Even after rebates net energy costs still eat up 13% of their disposable incomes, while they eat up only 2.5% of rich families' incomes. The UK also tried to mitigate the regressive nature of fuel consumption taxes for many years before deciding a different strategy was needed back in 2000.The problem is that it is costly to administer the process of rebating taxes back to the poor. Government salaries can eat up 25% of the taxes collected that need to be rebated. With respect to transportation fuels, since 2002 most European nations have started to shift their conservation/environmental tax focus away from energy production and consumption to vehicle registration and use. CO2 taxes--largely on transport fuels--accounted for 7% of government revenues in Norway in 1991. They account for less than 2% today (after per capita transport fuel use and emissions increased over 38% between 1991 and 2005 in spite of the high CO2 tax). Special annual vehicle registration taxes now generate about 5 times more Norwegian revenues than the CO2 tax does. France was the first to implement a special tax on annual vehicle registration as a conservation measure, and France never used carbon or CO2-type fuel taxes to incent behaviour change. As of the end of 2007, every EU member state has shifted more towards the French model (Germany being the last to implement the shift in 2008.) They set annual car registration taxes based on the vehicle's: (1) gross weight, (2) fuel efficiency rating and (3) distance logged on the odometer or IB2 chip since the last registration. It might be a little early to say, but so far, this looks like a very administratively cost effective and much less regressive tax measure. (Low income families tend to own older, smaller cars and use them less. Most of the EU nations have exempted old small cars or applied a heavily discounted registration tax rate to them, to mitigate the impacts on low income earners without the complicated costs of a rebate system.) When you think about it, the car tax is more consistent with the General Equilibrium economic theory they taught us back in Econ 100. The textbooks say a consumption tax is only an effective way to change behaviour if the tax is applied at a the point of a "primary" consumption decision. Most transportation fuel purchase decisions are "secondary"--they derive from our decisions to live in certain neighbourhoods and to buy and register certain vehicles. So even the theory tells us that the car tax should effect more behaviour change at lower annualized tax cost than a fuel tax--and it appears to be so in real life. That it is cheap to mitigate the impact of the vehicle registration tax on low income families and/or certain businesses--all you need to do is put codes in the database for certain registration addresses and licenses (admin costs run less than 1% of program revenues)--is just an important side benefit.Of course, it remains true that if governments price any tax sub-optimally they are simply indicating that their priority is new tax revenues and not GHG reductions.I should also note that the EU experience disproves the popular theory that retail fuel price increases drive investment into cleaner tech options. The car registration tax system appears to be having a much more direct impact on captial investment decisions than much higher annualized equivalent in fuel taxes ever had (but, again, it might be too early to say the fat lady has sung on this one).But think for a minute about the popular theory that says that all we have to do is tax fuel inputs to get the capital markets will throw cash at clean techs and clean tech jobs. If that was true then the most cost-effective way for us to revitalize the North American auto industry would be to tax the H--- out of plastic, aluminum, iron and glass. As the theory goes, capital markets will then throw lots of cash into new processes to build smaller/lighter cars. Real life does not work that way.
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auntiegrav Posted 10:26 am
06 Apr 2009
It isn't the taxes that make rich people rich, it's the money YOU spend to make the gap wider and wider. The rich get richer because we buy their stuff at exploitative prices (when you consider the cost of wars to keep the resources flowing from even poorer countries than what our 'poor' live in). The fair part about the FairTax is that it gives a rebate for the poverty level spending. That's all. The rest (carbon reduction, moderating consumption, etc. is NOT a claim of the people promoting the FairTax.) That part is up to you. How fair is the 'free' market which gives all the breaks to businesses who can game the system? Make the system ungameable: the failure mode of the FairTax is that people stop buying stuff they don't need and put their money into savings instead of giving it to the corporations that promise "always low prices". Where's the downside? We cannot keep the economy we have, regardless of what we dream. We can only fail big or fail in way that creates a sustainable system. The income tax is the cancer. The FairTax is the car crash where you get to pick how fast you are going. Take your pick.
The major problems we are facing right now aren't about rich or poor: it's about overconsumption and deception and government assisting corporations and the rich to increase consumption through taxes on our children under the premise of "fixing" the 'economy'.
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scatter Posted 5:50 am
08 Apr 2009
"Just because it looks elegant sketched on an economist’s whiteboard
doesn’t mean a tax can’t be corrupted in the real-world political
process. (Have a quick look at the U.S. tax code.)"I just can't see what kind of exotic tax structures a company could design to avoid a carbon tax in the way a company might avoid taxes on earnings.Money is ephemeral, digital, virtual (or non-existent as it turns out) and can be transferred at the speed of light around the world at the touch of a computer button.Fossil fuels on the other hand are tangible, physical and dense and must be shipped or piped around the world and the country through a comparatively limited number of ports and nodes of entry and extraction. It is therefore much easier to track flows of fuel than money. The tax would be charged at these nodes and then passed down the supply chain to the end user wouldn't it?Surely import duties on goods mostly work? Sure you get black market trade in cigarettes and booze and what have you, but that would be kind of tricky at a supertanker scale, wouldn't it?If someone can suggest a way that a company could dodge a carbon tax while still burning enough fossil fuel to go about their business, I'd be very interested to hear it!
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Sean Casten Posted 6:01 am
08 Apr 2009
Scatter:Careful with the assumption that a price on pollution immediately changes behavior. If a polluter is charged for their pollution, they have two choices - either absorb the cost increase (e.g., reduce their profits, and make shareholders pay for the pollution) or pass it along to customers as an increase in prices. (Or, to be fair, somewhere in between). If they choose the former, the polluter is penalized, but the demand for their product is unchanged, potentially leading to no reduction in CO2 emissions. If, on the other hand, they choose the latter, the penalty for CO2 emissions is borne entirely by their customers, and demand for product only changes as a weak function of price depending on elasticity of demand. (For example, a 10 cent increase in the price of gasoline doesn't materially affect the demand for gasoline.) Finally, note that this whole system only provides the weakest of incentives to those who would actually act to reduce CO2: just because my competitors cost structure has gone up doesn't mean that I immediately have more revenue I can earn, after all.The net result is that if all we do is price CO2 at the point of release, there is no guarantee that we get a reduction in CO2 emissions or a penalty that hits the wallet of those responsible for the emissions. The cap is designed to fix the former problem, but still doesn't address the latter.As Jon Stewart said once when asked whether he was a Democrat or Republican, "even a graph has a y-axis". The problem with the carbon tax vs. cap & trade discussion is that it assumes that this is the universe of our options. All of the problems noted above can be fixed with a system that includes a balance of carrots and sticks, so that polluters pay per ton of emissions and "cleaners" receive an equivalent payment per ton of reduction. See one approach here.One may have other approaches - but the key point to recognize is that economically, a price on pollution alone doesn't fix the problem.
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scatter Posted 6:13 am
08 Apr 2009
Whether it's passed on or not is surely down to the carbon intensity of the goods or services you're talking about and the level of the tax. I can't quite see Exxon absorbing $1 a gallon ($100ish/tCO2 if my maths is right).Surely if the tax is set at a reasonable level there'd be a strong competitive advantage to decarbonising your production processes?I don't see it as *the* solution to our carbon woes, but I do see it as a powerful and comparatively simple fiscal tool.
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Sean Casten Posted 7:04 am
08 Apr 2009
Scatter:There is only an incentive to decarbonizing your process if you cannot pass the price along - if Exxon cannot absorb the $1/gallon as you suggest, it essentially means that their owners have no incentive to avoid that cost - customers pick up the tab. The degree to which they will have to pick up the tab - and therefore, the incentive to decarbonize - is a function of whether or not there are competing, lower-carbon fuel sources available that also have a lower price. (Note that lower carbon alone is not sufficient, if they start from a substantially higher fundamental cost.) And as the run up in gas prices in 2006 - 2008 showed, there doesn't appear to be any strong candidate to replace gasoline up to near $5/gallon, at least in the near term (and with the exception of other heavily subsidized fuels, like ethanol at the margin).This is not to suggest that there will never be a cost-effective replacement to petroleum, nor that pricing the externality is a bad idea - it's simply to point out that a price on CO2 emissions alone is not sufficient to guarantee a change in the usage of carbon-intensive materials.(As an aside: why is it that you can only reply to posts twice, and then have to start a new thread? David?)
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GreyFlcn Posted 1:16 pm
08 Apr 2009
The bottom line.A) If the price/supply of this carbon disincentive is controlled by Congress. We can be pretty sure that the carbon disincentive will never be anything more than just a hollow gesture. Since Congress members are cowards when it comes to inflicting pain on voting constituents.B) If all the worlds scientific institutions were atleast 90% certain a large meteor was going to hit the earth in 50 years, the last thing we'd be doing is worrying about how to finance dealing with it. We'd just start spending.
Perhaps it's time to stop acting like this is some elaborate charade to merely placate the hippies. And start treating is a critical issue of national and global security.
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Chip H Posted 7:06 pm
08 Apr 2009
Your primary consumption decision is not your cars, it's the location of your house in relation to the geographic center of the metropolitan workforce, (unless you happen to telecommute). Your secondary consumption decision is the displacement of your petro-vehicle, unless you have regenerative braking, a turbu supercharger, an all-electric first 50 miles, (or you happen to telecommute, or you use the car to get to the transit bus). And yes, a gasoline tax does nothing, except impoverish poor people.A carbon purchase tax should be levied on the home purchase, and a carbon location tax should be levied supplemental to the property tax on your home. Then a secondary carbon consumption tax should be levied on your vehicle engine displacement, flat out, no hedges. Then all these taxes must be rebated, by law. A State rebate must be offered in the form of a sales tax offset or credit from that secondary carbon tax for vehicles that are regenerative or all electric or turbocharged or fuel saving.Rebates for those who use their cars to get to the bus are a free pass to ride the bus. And rebate the carbon portion of property tax and vehicle tax for tele-commuters, as a State income or sales tax credit, once employers have the responsibility of identifying telecommuting employees on the W-2s.More than any other program, telecommuting has the single greatest impact on carbon reduction.That accomplishes the primary goal of limiting consumption of fossil fuels. Above all, prohibit any part of the carbon taxes from being used by the State for further "studies, research or Ecology staffing", because that just games the system, the same way the corporations do, but without a sunset clause.That is, once carbon tax revenues go into funding State programs, that is extortion and corruption. You only have to look at how the State finances capital projects now, or how the State grows their payrolls, and that's precisely why voters are screaming, they know Cap & Trade is just more civil service welfare. If you read WA's C&T, revenues were going to be spent on "studies,
research or Ecology staffing," and that's why voters grabbed their
torches and their pitchforks, that smell of burning bacon and Lazyboys.The sum of all carbon taxes must *by law* equal the sum of all rebates, then voters would support it.
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scatter Posted 1:55 am
09 Apr 2009
(I think you can only do a couple of replies because it'll get more and more squashed over to the right by the indents)
OK I take your point on Exxon not really having much of an alternative, but consider a manufactured product like a car. Wouldn't the tax provide a strong incentive to spur the manufacturer towards implementing strong energy efficiency measures and therefore offer their product at a lower price than their competitors? A car has embodied carbon of maybe 5 to 10tCO2. At $100 a tonne, a manufacturer that's more heavily reliant on carbon intensive processes could be at a substantial disadvantage compared to a lower carbon competitor.Once all cost effective efficiency measures had been implemented they could move to low carbon energy sources. Shareholders might even start to *demand* energy efficiency and low carbon energy sources as part of the company's duty to maximise shareholder profits? (That would be quite something!).
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auntiegrav Posted 4:39 am
09 Apr 2009
There have been some good comments here, so once again, I'll try to incompetently make my point:If someone had come up with a 'carbonless' energy source in the 1940's, we would still have consumed the planet. Carbon is a problem right now because Al Gore (and others, of course) made people aware of the carbon dioxide problem, but the real issue is one of consuming more than we need to consume of everything. Some people will pop their hand up immediately and say we need population controls. Others say we need a carbon tax. Still others say we need incentives to encourage savings instead of spending.All of these issues can be addressed with one change: get rid of income taxes and put all externals (carbon, government, overconsumption, police protection for our 'stuff', fire protection, roads, bridges, welfare--ALL of it) onto a sales tax for everything (I humbly recommend the FairTax.org plan, but not at such a low rate).If someone figures out what's wrong with physics and we get cold fusion, the carbon tax becomes moot yet we would still "Expand or Die", and end up doing both.Something needs to be done about the oxymoron of "sustainable growth" that has permeated social thinking just like "perpetual profits" has up until now.We know that things cannot grow perpetually. We know that overconsumption is a problem. Currently, carbon IS part of almost everything we buy or do but that doesn't mean it always will be.Don't keep the argument so narrow as between "carbon tax" and "cap and trade". Look deeper at the causes of our problems and look for the simplest possible solution.
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Sean Casten Posted 5:51 am
09 Apr 2009
Scatter:Our CO2 footprint in the US comes essentially from three sources: power generation, transportation and thermal energy generation. Auto manufuacturing only produces CO2 to the degree that it relies on those upstream sources (gas in their paint booths, power for their conveyor lines, fuel oil to transport cars from the manufacturer to the dealer, etc.) The decisions points in the system that can affect CO2 release therefore aren't to any substantial degree at the manufacturer - they are at those upstream points where someone decides to burn fuel. So the question of tax vs. other is whether the price shifts behavior at that point. If I own a coal boiler and can pass along all the cost of my CO2 emissions to my customers, I don't give a damn about the emissions. If I can't pass any of it along to my customers, I have an incentive to conserve, but my customers don't have an incentive to reduce their use of my product. So to take your auto example, that really only starts to drive behavior if the guy who was releasing the CO2 in the first place didn't feel a penalty for having released the CO2. This isn't an intractable issue - it's simply to point out that it is logically impossible for a regulatory model that relies solely on pricing CO2 at the point of release to send an economic signal to CO2 emitters to stop releasing CO2 and send an economic signal to their customers to reduce their consumption of CO2 intensive products. Given the urgent need to reduce CO2, it is reasonable to expect a regulatory system to do both - but that means that we have to think about a framework that does more than simply penalize CO2 sources.
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amazingdrx Posted 7:07 am
09 Apr 2009
The Obama budget takes 30 billion away from old energy economy subsidies, corporate welfare for fossil fuel industries. Would a carbon tax or cap & trade raise that much? And if these options did raise that much, would they be politically possible? Would rebates to lower and middle income taxpayers eat most of the cash raised?

30 billon per year, spent wisely, would be enough to spur new energy economy green job creation. Stop debating over cap & trade (which is being scammed in europe by hedge funds) and carbon taxes, which can't pass a senate in "reconciliation" mode, and with dem coal state senators deserting Obama's green agenda. Subsidy diversion is IT! And it meets the goals of this article's title. "...Simple, Immune to manipulation, and politically palatable".

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